What Does the Term Fair Value Mean?

Answer:
The total of value of underlying securities, plus the

interest required to purchase these stocks, less the amount of dividends which have been paid by these stocks, is known as Fair Value.

The association between the futures contract on a market index and the actual value of the index refers to the “fair value” which is shown on TV. Investors bet the market index will rise if the futures are above fair value – and fall if the futures are below fair value. Of course, depending on the amount investors are willing to pay, the value of a security can change from one minute to the next.

Fair value is an important factor for all investors to consider - as it can be used to assist in developing a real edge in trading.